ONGC Q3 Results Review - Write-Offs Lead To Lower Than Expected Performance: Motilal Oswal

Motilal Oswal Report

Oil and Natural Gas Corporation Ltd. reported Ebitda stood at Rs 171.6 billion (-16% YoY), 4% below our estimate, mainly due to higher-than-expected exploratory well write-offs in Q3 FY24. profit after tax was 4% higher than our estimate, mainly aided by higher other income and a lower-than-expected tax rate.

The management has guided for a 5% compound annual growth rate in overall production over the next three years, mainly driven by KG 98/2 and Daman upside development. Gas production from the KG 98/2 asset, which will begin in Q3 FY25, is expected to ramp up to 10 million metric standard cubic meter per day in FY25.

The management remains confident that ONGC will command a 20% higher gas price for new wells and that in three years, ~20% of gas production could command such higher pricing.

We decrease our standalone FY24 Ebitda/earning per share estimates by 6%/7% and consolidated FY24 EPS estimate by 8% due to a weaker-than-expected performance in ONGC Videsh Ltd. during nine months FY24.

We value the standalone business at 6 times December- 25E adjusted EPS of Rs 34.2 and 'Add' the value of investments to arrive at our target price of Rs 315, implying 22% potential upside. We reiterate our 'Buy' rating on the stock.

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